NZ Treasury Housing Affordability Paper

It's a pity to have to be dismissive with
this paper ... - but its just so all over the place. We
should have been able to expect something of a much higher
standard from Treasury. The writer has enough to deal with
with the "research" being generated by elements within the
property sector - where we have a major problem with
"elastic calculators". We may just have to bring Michael
Walker, Comptroller General of the US Government
Accountability Office www.gao.gov ( click "From the
Comptroller General" to read his speeches ) to give our guys
in the public service here in Australia and New Zealand a
"pep talk" or two !!

Its interesting that they "consulted"
Dr Arthur Grimes - yet this paper appears ( although its not
altogether clear ) to conflict with Arthur's ( and the
wealth of American literature ). As you state, the Dem
Survey does not get mentioned - although one gets the
impression that it is attempting to attack it indirectly. I
have no doubt the Dem Survey ( with my public musings about
economists ) has raised the heart rates of a few in
Wellington. I stand by my public statements that we do not
have skilled urban economists in New Zealand and Australia
at this stage. Let's hope the situation changes before too
long.

Basic stuff like using averages instead of medians -
then popping in both averages / medians in to the same
calcs. And to even mention those Bank / University Housing
Affordability Indexes. Simply extraordinary

The Dem Survey
median multiple approach does not purport to be all
encompassing or indeed the perfect measure. But it must
surely pass the "adequacy" test in that it provides a
satisfactory measure with the categorizations of affordable,
moderately unaffordable etc etc as a gauge of affordability
levels of the urban markets surveyed.

We know enough from
the Dem Survey findings that "normal" markets should swing
between 2.5 to 3.0 median multiple through the building
cycle. Its interesting that Houston was 2.9 back in Sept 05
( 06 Dem Survey data at this time ) and now in Feb it has
fallen to 2,7 ( median housing prices gone from $145,000 to
$138,000 ) as the market has weakened. We do know too that
new starter homes in Houston ( with land ) cost in the order
of $800 per square meter - $80,000 for a 100 sq metre
exercise - $160,000 for a 200 sq meter one. The Houston Assn
of Realtors www.har.com ( click homes
for sale page then on right hand side ) provides extremely
useful information on al the subdivisions within Houston,
when they were put in and pricing movements ( incl on a sq
ft basis ) over time. I am sure one would find the same or
very similar "market behaviour" throughout the other North
American urban areas achieving 3 median multiples or below.
Its all there for the guys to read. That's once NZ and
Australian economists, in dealing with land use issues,
"discover" North America !

Its extraordinary of course
that the Treasury paper made no mention whatsoever of any
North American market whatsoever - but instead bought in (
of all places ! ) Britain ( and Australia ) - the property /
planning disaster of the Western world. There is nothing we
can learn from Britain - other than what not to do. I did
some rough calcs yesterday that would indicate that on a per
1000 people basis Britain gets in just one ninth of the new
residential floor space Houston does per annum. New housing
construction rates - Houston near 9 per 1000 population (
last 12 months approx 48,000 units; population 5.4 mil ),
Britain 3 and compounding this, the average new British home
is about one third the size.

In Australia and NZ we are
running at around the 6 to 7 per 1000
incidentally.

Importantly - the Dem Survey illustrated
clearly that 24 of the 100 markets surveyed are currently
"affordable" - and that most were 20 to 30 years ago. We all
know that there are difficulties with Stats income figures (
that's Stats problem - not ours ) - but at least we can
probably say that they are "consistently inaccurate". The
key thing is consistency across markets and over time - for
what we are attempting to explain. You will note that in the
back of the Dem Survey that we are very careful in
explaining this - urging readers to focus on the
"categories".

There is enough in my view within the Dem
Survey to then move on to further research such as median
multiples within all local authority areas / significant
urban markets, peripheral urban land pricing ( including
breakouts of infrastructure charges levies etc ) and
construction costs - currently and over time. I outline
these issues within a recent letter to Bob Harvey and in a
paper I did back in November ( both accessible on www.demographia.com ).

We could go on
( as the Treasury exercise does ) about all the other
"changes" and factors that could be considered, such as
changing house sizes, household composition, interest rates,
climate, geography etc etc etc. but does this really assist
us in progressing these issues? It is my view that if we
can't articulate housing affordability issues in a way that
people and policy makers can readily understand - we do not
have the "foundation" in place to progress the issue and
develop appropriate policies to deal with it. In fact, this
is exactly what drove me to instigate the Dem Survey with
Wendell Cox.

So lets hope the Treasury guys and others
within the public service "get their act together" and
assist in generating sound credible research that assists in
moving these issues forward. People such as me have enough
to deal with within the property sector in attempting to
encourage sound and credible research. This is not always
particularly easy with all the political and commercial
pressures involved. So we should expect much higher
standards from those within the more protected confines of
the public service. I would suggest that the NZ Treasury
guys read ( and memorize !! ) Michael Walker of the US GAO
speeches - prior to launching in to further research.

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